The austerity policies of the past two years is threatening a double-dip recession.

It's time for some of those among us to come to two uncomfortable truths on this forum.

1. The Obama administration has overseen the sharpest decline in deficit spending just about every single one of us have seen in our lives, thanks in part to austerity demanded by Tea Party Republicans.

2. This radical reduction in the deficit is risking to stop our recovery growth dead in its tracks.

I've made this point over and over and over and over on this forum: deficit reduction retards growth.

So when you slash into the deficit as severely as we have, you will slow growth with the same severity. And what do you know? We ended up with negative growth in 2012's fourth quarter. Two quarters in a row, of course, is the legal definition of a recession (assuming the original assessment of 2012's 4th quarter holds where it is).

We've learned nothing from Europe, which has seen huge unemployment numbers, languishing recoveries, and double- and triple-dip recessions because they embraced austerity during a financial crisis while we embraced (albeit limited) stimulus.

In comes the Tea Party, and by the conclusion of the past Congressional cycle of radical austerity policy, we're now on the verge of a double-dip recession.

This is not random, folks. This is happening for that specific reason.

Here's a pretty important fact that virtually everyone in Washington seems oblivious to: The federal deficit has never fallen as fast as it's falling now without a coincident recession.

To be specific, CBO expects the deficit to shrink from 8.7% of GDP in fiscal 2011 to 5.3% in fiscal 2013 if the sequester takes effect and to 5.5% if it doesn't. Either way, the two-year deficit reduction — equal to 3.4% of the economy if automatic budget cuts are triggered and 3.2% if not — would stand far above any other fiscal tightening since World War II.

Until the aftermath of the Great Recession, there were only three such periods in which the deficit shrank by a cumulative 2% of GDP or more. The 1960-61 and 1969-70 episodes both helped bring about a recession.

Far steeper deficit cuts during the demobilization from World War II and in 1937-38 both precipitated economic reversals.

Now the deficit is shrinking about 50% faster than it did during the booming late 1990s, when the jobless rate was falling south of 5% and tax revenues were soaring — without tax hikes.

That's not to say that a recession is in the cards now, as the Federal Reserve applies its might to keep housing on a recovery path and helps propel the stock market higher. But growth is likely to be disappointingly weak yet again.

The Congressional Budget Office projects just 100,000 jobs will be added per month this year, the jobless rate will remain stuck around 8% and the economy will grow 1.4% if the sequester takes effect, but that may be too optimistic.

There was certainly no good economic reason for policymakers to risk the hit to growth that came with the roughly $200 billion fiscal cliff tax hike. Now they risk compounding the fiscal drag with poorly targeted budget cuts.

History suggests that there's little good to be gotten from cutting the deficit much faster than 1% of GDP per year. That's especially true at the moment, given the nature of our related demographic and budget challenges.

Both of those challenges suggest that growth should be our paramount concern, far ahead of near-term deficit reduction, even as we work to improve the intermediate-term budget outlook.

As far as the budget goes, it makes no sense that Congress remains focused on cutting discretionary spending. The danger clearly comes from entitlement programs, particularly health care, and the prospect that interest on the debt will spiral if we don't better align spending promises with revenues. These are programs that need to be reformed gradually and with great care, but there's no good reason to delay.

As for demographics, this was supposed to be the decade in which the leading edge of the Baby Boom generation began to ease out of the workforce and pass the baton to the next generations. Instead, there are not enough jobs to go around to allow for a seamless transition and Baby Boomers are hanging on longer as they try to recover from the financial damage inflicted by the housing bust.

There has been plenty of economic pain to go around, but younger workers have borne the brunt of three crises — jobs, housing and student loans. Since January 2000, the number of full-time jobs is up 10.5 million among workers 55 and up but down close to 8 million among the under-55 population.

In the speeches of Washington politicians, deficit reduction is all about being fair to the young and not leaving the next generation with ungainly debts. That might be true if deficit reduction came through smart changes to entitlement programs, but that's not the case.

In effect, the overly rapid fiscal retrenchment is giving younger workers a deal that none of them should want: We'll slash the deficit now, so that you will have a harder time getting good jobs and paying back your personal debts. We'll cut critical government spending on education, infrastructure and science so that new college graduates for whom job prospects remain discouraging can put their futures on hold for a little longer.

Well on that you're wrong, but unsurprisingly, you again don't reply to the entire thought, just a snippet because you look bad.

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Sure he can.

Right.

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Obama's started. Perhaps you caught the State of the Union address.

He's pulled off about $700B in savings from Medicare, and put another $400B to Medicare on the table in the fiscal cliff deals. In the SOTU he upped the ante for Medicare savings even further.

Which doesn't really fix our problem but whatever. If that's the case we should see the democrats start a bill when they get back from vacation. Let me know what that bill number is when it happens so we can hold hands and track it together.

Well on that you're wrong, but unsurprisingly, you again don't reply to the entire thought, just a snippet because you look bad.

I respond to the parts that I disagree with that we haven't beaten to death yet.

And I'm right, by the way.

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Originally Posted by mlyonsd

Which doesn't really fix our problem but whatever.

Sure it does.

Our future deficits are driven by healthcare costs. If you can get Medicare under control (and to a lesser, more manageable extent Medicaid and Social Security), you get the budget under control, long term.

[QUOTE=Direckshun;9411795]I respond to the parts that I disagree with that we haven't beaten to death yet.

And I'm right, by the way.[/quoteAlas,we are at an impasse.

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Sure it does.

Our future deficits are driven by healthcare costs. If you can get Medicare under control (and to a lesser, more manageable extent Medicaid and Social Security), you get the budget under control, long term.

If by more manageable you mean reduced benefits including life saving procedures we can finally agree on something.

If by more manageable you mean reduced benefits including life saving procedures we can finally agree on something.

I probably wouldn't agree with you on that score, but that doesn't detract from the point that if you can get Medicare spending under control, you'll get the long term budget projections under control.